Opinion of the Advocate-General
1 In this case the Court has once again been called upon to give a ruling on the interpretation of Council Regulation (EEC) No 2473/86 of 24 July 1986 on outward processing relief arrangements and the standard exchange system. (1) Here, the Bundesfinanzhof (Federal Finance Court) is asking the Court to clarify the interpretation of the second subparagraph of Article 13(2) of that regulation, in particular the concept of the processing value applicable for the purpose of determining the definitive customs duty.
Legal background
2 As stated in Article 1(2) of Regulation No 2473/86, outward processing relief arrangements allow Community goods to be exported temporarily from the customs territory of the Community in order to undergo processing, working or repair and the products resulting from those operations (`compensating' products) to be released for free circulation in the customs territory of the Community with total or partial relief from import duties.
As we know, the purpose of that mechanism is to avoid the levying of customs duty on goods exported from the Community for processing. To that end, Article 13(1) of the regulation provides in particular that:
`The total or partial relief from import duties provided for in Article 1(2) shall be effected by deducting from the amount of import duties applicable to the compensating products released for free circulation the amount of import duties that would be applicable to the temporary export goods if they were imported into the customs territory of the Community from the country in which they underwent the processing operation or last such operation'.
In practice, the import duty actually due on compensating products is calculated by subtracting from the theoretical amount of duty applicable to such products upon importation into the Community the notional amount of duty applicable to the temporary export goods.
3 The value of the temporary export goods is to be calculated in accordance with the second subparagraph of Article 13(2), according to which it is the value `taken into consideration for those goods in accordance with Article 8(1)(b)(i) of Council Regulation (EEC) No 1224/80, as last amended by Regulation (EEC) No 1055/85, when determining the customs value of the compensating products or, if the value cannot be determined in this way, the difference between the customs value of the compensating products and the processing costs determined by reasonable means'.
In practice, provision is made for the value of the temporary export goods to be calculated in two distinct ways. The first sets out what is probably the more frequent case, in which the customs value of the compensating products is determined in accordance with Article 3 of Regulation No 1224/80 on the valuation of goods for customs purposes, (2) and the temporary export goods are supplied by the buyer free of charge or at a reduced cost (hereinafter `the first alternative'). (3)
The second possibility envisaged in the regulation, by contrast, relates to situations in which the product incorporated in the imported goods has been supplied for valuable consideration, as in the present case, so that the prerequisites for applying Article 8 of Regulation No 1224/80, which, as stated earlier, refers to products supplied by the buyer free of charge or at reduced cost, are not met (hereinafter `the second alternative'). In those circumstances, according to the provision in question, the value of the temporary export goods must therefore be determined by deducting from the customs value of the compensating goods the processing costs determined by reasonable means.
Facts and questions referred for a ruling
4 The facts of the case may be summarized as follows:
Wacker Werke exports petrol engines and diesel engines to the United States of America under the outward processing relief arrangements and imports equipment which is manufactured by Wacker Corporation (with which it has financial links) and in which the said engines are incorporated. In particular, Wacker Werke invoices the petrol engines manufactured by it on the basis of production costs, increased by 25% for general expenses and profit margins, whereas it invoices the diesel engines purchased from third-party producers on the basis of the purchase price increased by 5%. The imported equipment, by contrast, is invoiced at the prices indicated in the selling company's price lists, reduced by 45%.
As the national court itself has acknowledged, there is no reason to believe that the prices invoiced for the temporary export goods and for the compensating products are influenced by the links between the two companies.
5 The Hauptzollamt (Principal Customs Office) München initially calculated the customs value of the compensating products and of the temporary export goods on the basis of the prices which the two companies had invoiced to one another; subsequently, however, it considered that whereas the value of the compensating products should be fixed on the basis of the invoiced selling prices, that of the temporary export goods should be determined on the basis of production costs (in the case of the petrol engines) or the purchase price (in that of the diesel engines), that is disregarding the increase of 25% or 5% applied by Wacker Werke; accordingly, it took steps to recover DM 36 057.20 by way of customs duty.
Taking the view that the correct method of calculation was the one initially adopted, Wacker Werke first contested the demand for payment and then brought an action before the Finanzgericht (Finance Court) München. The company maintained in substance that the engines had been supplied for valuable consideration and that it was therefore not possible to rely on Article 8(1)(b)(i) of Regulation No 1224/80, according to which, as stated earlier, the value of `materials, components, parts and similar items incorporated in the imported goods' must be taken into account when determining the value of the goods before processing, on the grounds that this provision applies only if such materials and components have been supplied `free of charge or at reduced cost', as is clear from its wording.
6 The Finanzgericht München decided to stay proceedings and refer to the Court three questions for a preliminary ruling concerning the interpretation of the provisions applicable for the determination of the value of the compensating products and the temporary import goods within the meaning of the aforesaid regulations.
By judgment of 17 December 1992 (4) the Court held as follows: `Council Regulation No 2473/86 of 24 July 1986 on outward processing relief arrangements and the standard exchange system is to be interpreted as meaning that, in calculating the total or partial relief from import duty for which it provides, the calculation of import duty on the compensating products must in principle be based on the transaction value of those products, while the value of the temporary export goods must be calculated using one of the two methods set out in the second subparagraph of Article 13(2) of that regulation. If the value of the compensating products has been determined without any adjustment for the purposes of Article 8(1)(b)(i) of Council Regulation (EEC) No 1224/80 of 28 May 1980 on the valuation of goods for customs purposes, the value of the temporary export goods corresponds to the difference between the customs value of the compensating products and the processing costs determined by reasonable means, such as taking account of the transaction value of the goods in question.'
7 Following that ruling, the Finanzgericht upheld Wacker Werke's application, holding that, if the calculation of the amount to be deducted in the case was governed by the second alternative in the second subparagraph of Article 13(2) of Regulation No 2473/86 (no adjustments having been made within the meaning of Article 8(1)(b)(i) of Regulation No 1224/80), the processing value had to correspond to the transaction value of the compensating products, that is the purchase price inclusive of uplifts, after deduction of the processing costs. The Finanzgericht pointed out that it considered those rules to be applicable even where they had resulted in unjustified preferential treatment on account of certain conditions relating to customs tariffs (in particular, the imposition of a higher levy on the temporary export goods than that borne by the compensating products).
8 The Hauptzollamt decided to appeal against the judgment of the Finanzgericht.
In the proceedings before the Bundesfinanzhof, the Hauptzollamt maintained that the processing costs within the meaning of the second alternative in the second subparagraph of Article 13(2) of Regulation No 2473/86 cannot be determined with a sufficient degree of certainty merely by deducting the selling price of the temporary export goods from the purchase price of the compensating products. In support of its view, it relies on the rationale behind the outward processing arrangements, namely the levying of customs duty on the actual increase in value of the Community goods after processing in a non-member country. According to the Hauptzollamt, that rationale is adhered to only where the value of the temporary import goods is at least very close to the purchase price or the production costs (which is essentially the case where the first alternative referred to in the second subparagraph of Article 13(2) of the regulation applies). On the other hand, in the case of substantial uplifts (in this case 25%), the computation of those uplifts for the purpose of calculating the processing value ultimately excludes the prescribed customs levy on the processing costs and therefore confers unjustified advantages for customs purposes on the trader.
9 Taking the view that the judgment in Wacker Werke had failed to dispel all uncertainty relating to the interpretation of the relevant provisions, in particular with reference to the determination of the processing value, the Bundesfinanzhof considered itself bound, in its capacity as court of last instance, to stay proceedings and refer the following questions to the Court for a preliminary ruling:
`1. Is the second alternative provided for in the second subparagraph of Article 13(2) of Council Regulation (EEC) No 2473/86 of 24 July 1986 on outward processing relief arrangements ...... (OJ 1986 L 212, p. 1) to be interpreted as meaning that a method of determining processing costs is reasonable only if the resulting value of temporarily exported goods corresponds approximately to the purchase price paid by the holder of an outward processing authorization or to the production costs?
2. If the answer to the first question is in the negative, in determining the processing costs can reference be made to the purchase price for the inputs inclusive of uplifts paid by the processor to the holder of an outward processing authorization, and does that apply equally where there is a tariff anomaly resulting in a higher rate of duty for the unprocessed goods than for the compensating products?'
10 In my view, the answer to those questions is already set forth, in fairly explicit terms, in the judgment in Wacker Werke, where the Court, as I said earlier, expressly stated that `taking account of the transaction value of the goods in question' may constitute `reasonable means' for the purpose of determining the processing costs.
In that regard, allow me to recall the observations I made in my Opinion in that case. (5) I began by pointing out that although in abstract terms it could be held that the costs borne by the processing undertaking in manufacturing the compensating products are all processing costs, such an approach would mean that the customs value of the compensating products corresponded to the amount of processing costs, with the result that the value of the temporary export goods would be equal to zero, a consequence that would not appear to have been intended by the Community legislature.
11 I went on to state that, in my view, a correct and reasonable method of calculating the processing costs may consist - where, as in this case, there are no doubts regarding the transaction value of the temporary export product - in subtracting from the costs borne by the processing industry, which are reflected in the selling price and hence in the customs value of the compensating products, the cost of purchasing the temporary export goods, since it is these goods that are the subject of the processing operation.
In the circumstances of the case, I went on to suggest that the cost of processing the compensating products supplied by Wacker Corporation should be calculated by deducting from the selling price taken into consideration in calculating the customs value of such goods, the sums paid by Wacker Corporation for the purchase of the engines, including the increases applied by Wacker Werke. (6) The Court, as I have said, decided to endorse that approach.
12 Faced with the express statement that the transaction value of the goods may constitute a reasonable means for determining the processing costs, therefore, it seems to me that the national court's questions can only be understood as seeking to ascertain in substance whether that solution is also valid in the case of tariff anomalies conferring an unjustified advantage on the trader for customs purposes.
According to the argument put forward on that point by the Hauptzollamt, which has also been endorsed by legal writers, in a situation of that kind the processor's production costs should not be taken into account unquestioningly, but should be scaled down, if they appear to be excessive, to a level consonant with that resulting from the application of the first alternative in the second subparagraph of Article 13(2), on the basis of which the value of the temporary export goods at least comes close to the purchase price.
13 However, I am unable to endorse that approach. To begin with, there is an obstacle inherent in the nature of the system. The second subparagraph of Article 13(2) provides, as we have seen, for two distinct methods of calculation for determining the value of the temporary export goods. Where, as in this case, the requirements for the application of the first method are not met, the calculation will have to be made on the basis of the criteria relating to the second method, which do in fact take the processing `costs' into account. Thus the two methods are quite clearly alternatives, which means that they need not necessarily lead to the same result.
14 Nor am I swayed by the considerations relating to the rationale behind the outward processing arrangements, which would be disregarded - according to the Hauptzollamt - if the trader were allowed to derive unjustified advantages therefrom for customs purposes.
As I argued in my previous Opinion, the overriding objective of the regulation in question is not so much to prevent unjustified advantages for customs purposes as to prevent the taxation of goods exported from the Community for processing. (7) Any unjustified advantages which might arise should therefore, in accordance with the relevant provision as currently worded, be tolerated at least in principle. (8)
15 It would be otherwise if the processing operation, carried out by a seller and purchaser linked to each other, displayed features, such as the commercial and pricing policy of the traders involved, suggesting that those traders were in fact pursuing aims other than processing itself, for instance circumvention of customs rules or, more specifically, unjust enrichment. (9)
That possibility, however, clearly does not correspond to the facts of the case now before the Court since, as the national court itself expressly stated, `there are no indications that the prices fixed by agreement between the two undertakings were influenced by their business links'.
16 In the light of the foregoing observations, I therefore propose that the Court answer the questions referred by the Bundesfinanzhof as follows:
(1) The second alternative provided for in the second subparagraph of Article 13(2) of Council Regulation (EEC) No 2473/86 of 24 July 1986 on outward processing relief arrangements and the standard exchange system should be interpreted as meaning that a method of determining the processing costs cannot be considered reasonable only if the resulting value of the temporary export goods corresponds to the purchase price paid by the holder of an outward processing authorization or to the production costs.
(2) That article is to be interpreted as meaning that, in determining the processing costs, reference can be made to the purchase price for the inputs inclusive of uplifts paid by the processor to the holder of an outward processing authorization, even where there is a tariff anomaly resulting in a higher rate of duty for the unprocessed goods than for the compensating products.
(1) - OJ 1986 L 212, p. 1. See, on the same subject, the judgment of 17 December 1992 in Case C-16/91 Wacker Werke [1992] ECR I-6821, given by the Court in the same proceedings as those which have given rise to this reference.
(2) - OJ 1980 L 134, p. 1.
(3) - Article 8(1)(b)(i) of Regulation No 1224/80 lays down that in order to determine the customs value of the goods to be processed (under Article 3 of that regulation), it is necessary to add to the price actually paid or payable for the imported goods the value, apportioned as appropriate, of `the materials, components, parts and similar items incorporated in the imported goods' where they are supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods, to the extent that such value has not been included in the price actually paid or payable. That situation, however, does not arise in this case, where it is common ground that the transactions were for consideration.
(4) - Judgment in Case C-16/91, cited in footnote 1 above.
(5) - Opinion of 13 May 1992 in Case C-16/91 [1992] ECR I-6831.
(6) - Opinion in Case C-16/91, cited above, point 7.
(7) - Opinion in Case C-16/91, cited above, point 8.
(8) - The Bundesfinanzhof itself, after expressing the doubts which induced it to make a reference, states at the end of its order that it favours this interpretation (which is shared, moreover, by the Commission as well as by Wacker Werke evidently).
(9) - In any event, this would be a matter for the national court to establish.
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